ServiceMagic 2010 Annual Report Download - page 53

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Table of Contents
ultimate settlement. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the
probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which
may require periodic adjustments and which may not accurately anticipate actual outcomes.
Stock Based Compensation
As disclosed in the notes to the consolidated financial statements, the Company estimated the fair value of stock options issued in 2010,
2009 and 2008 using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 2.4%,
2.1% and 2.6%, respectively, a dividend yield of zero and volatility factors of 30%, 59% and 47%, respectively, based on the historical stock
price volatilities of IAC for 2010 and peer companies operating in the same industry sector as IAC for 2009 and 2008 and a weighted average
expected term of the stock options of 5.6 years, 4.9 years and 4.4 years, respectively. The historical stock price volatilities in 2009 and 2008 of
peer companies was used due to the lack of sufficient historical IAC stock price volatilities subsequent to the Spin-Off. For stock options,
including unvested stock options assumed in acquisitions, the value of the stock option is measured at the grant date (or acquisition date, if
applicable) at fair value and expensed over the remaining vesting term. The impact on non-cash compensation expense for the year ended
December 31, 2010, assuming a 1% increase in the risk-free interest rate, a 10% increase in the volatility factor, and a one year increase in the
weighted average expected term of the outstanding options would be an increase of $1.5 million, $7.7 million, and $5.0 million, respectively.
The Company also issues restricted stock units and performance stock units. For restricted stock units issued, the value of the instrument is
measured at the grant date as the fair value of IAC common stock and expensed as non-cash compensation expense over the vesting term. For
performance stock units issued, the value of the instrument is measured at the grant date as the fair value of IAC common stock and expensed as
non-cash compensation over the vesting term when the performance targets are considered probable of being achieved.
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